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29/05/2017

Biomass for Power Generation: Belgium Policy Update

Strengths and weaknesses in the eyes of policymakers

On April 20th, the bankruptcy of ‘Langerlo’ – a 400 MW coal unit poised to be converted into a pellet-fired power plant – was announced, a few weeks after it became clear that it would not be granted the promised EUR 2 billion of subsidies it needed.

Back in March 2016, there was a 850 MW pipeline of new biomass projects. One year later, in short, the situation can be summarized as follows:

  • In Flanders, the government cancelled EUR 3.9 billion of support to two large-scale biomass projects: Langerlo (see above) and BEE Ghent (230 MW). This news followed the resignation of the former energy minister due to the rising cost of electricity
  • In Wallonia, an annual support of EUR 67 million is considered for a single biomass power plant and a call for tenders is ongoing. The government initially expected a 200 MW capacity but analysts doubt it can exceed the 120-150 MW range

Hence, in these troubled times for biomass project developers, the recent debates in Belgium give one the opportunity to cover the strengths and weaknesses of biomass for power generation.

Doubts about the sustainability of biomass

Nowadays, contribution to European renewable energy sources (RES) targets is the raison d’être of biomass projects in Belgium. Hence, criticism of the sustainability of biomass by environmental groups is a major handicap as it weakens the core reason why policymakers are keen to support it.

Such a debate goes well beyond the scope of this review. Let’s just stress the fact that, in Belgium, subsidies are made conditional to sustainability certification and that new rules of the European Commission’s Winter Package will strengthen the criteria. Yet, in people’s minds, international NGOs such as Greenpeace or the WWF also count as moral certification bodies.

Despite the controversy, the ‘green’ argument can also play in favor of biomass. Hence, whereas the installation of PV panels is subject to households’ goodwill (and financing means) and local protests often jeopardize onshore wind projects, the guarantee of putting online, at once, several dozens of megawatts of RES capacity is undeniably valuable.

Security of supply

Another main advantage of biopower is its dispatchable nature. Compared to the intermittent solar panels and wind turbines, it can be more easily inserted into the energy mix. On the other hand, the Belgian situation (large nuclear base load) pushes policymakers to mainly consider gas-fired power plants as a complement to intermittent sources.

Moreover, the variable costs of a biomass power plant represent more than 80% of the total costs. A legitimate fear of public authorities is that these units shall stop producing after the subsidy period if market conditions are not favorable. This partially explains why subsidies in Wallonia would be granted over 20 years compared to 10 years in the initial plans for Langerlo (Flanders).

Being the cheapest is not everything

Past subsidy schemes have been fiercely criticized and have had a lasting effect on public support to renewable technologies. Needless to say, the large scale of biomass power plants leads to significant amounts of public subsidies that are analyzed with scrutiny (Langerlo used to make the headlines with its “2 billion Euros of subsidies”).

Favored until recently by its lower costs, biopower now faces the dynamics of dropping costs for solar and wind. Policymakers are aware of it and, as an energy minister put it: “biomass is not even the cheapest renewable energy” (see Figure 1).

But being the cheapest is not everything. In these times of tight government budgets and price-sensitive energy consumers, cash flows also matter. For instance, public support to PV panels currently (although maybe not for long) amounts to 133 EUR/MWh in Wallonia in the first years, compared to 50-60 EUR/MWh for biomass.

In the coming months, two trends will be worth watching closely. First, will Belgian public authorities manage to (re-)negotiate better prices for the wind offshore concessions in the North Sea? These could drop from 124 EUR/MWh (total guaranteed price) to 73 EUR/MWh. Second, how will households and companies react to dropping costs? Flanders has already decided to stop subsidizing small (<10kW) installations and a Sia Partners study showed that the investment was still profitable.

Level of public subsidies per technology and per region (EUR/MWh)

Figure 1: Level of public subsidies per technology and per region over the lifetime of the installation (EUR/MWh)

Conclusion

By July, the winning offer in Wallonia should be known and we should see clearer which way the balance is tipping. Building on this experience, it will be time to assess the industry’s strategy for future projects.

Biomass lobbyists have so far consistently stressed the system benefits of biomass power plants. This aspect now deems to be further supported by the characteristics of the proposed projects. In the short term, it is most probably not the time for large-scale (i.e. > 200 MW) biomass projects in Belgium given the lack of coal power plants to be converted and citizens’ sensitivity to large amounts of subsidies. 

However, project developers have a window of opportunity to show how their plans can fit the local environment with a reduced size. First, by securing Power Purchase Agreements (PPA) with local clients for which such supply represents economic and social advantages. Second, by demonstrating that they are rooted in the local environment by means of cogeneration. In Belgium and in other countries, there is a growing demand for these local, integrated solutions.

 

Alexandre Viviers

Copyright © 2017 Sia Partners

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